Computer-implemented method and apparatus for adjusting the cost basis of a security

ABSTRACT

A computer-implemented method and apparatus for determining a cost basis associated with a plurality of shares of a security. In response to information identifying an issuer, the purchase date and the sale date, a list of capital events that occurred in connection with the security between the purchase date and sale date is retrieved from a database. One or more shares held adjustment ratios are then retrieved from a database. Each of the shares held adjustment ratios corresponds to one of the capital events that occurred in connection with the security between the purchase date and the sale date. A current cost basis associated with the security may then be determined in accordance with the one or more cost adjustment ratios and the purchase price per share of the security.

RELATED U.S. APPLICATIONS

[0001] This application claims priority from provisional application No.60/200,088, filed Apr. 27, 2000.

FIELD OF THE INVENTION

[0002] The present invention relates generally to accounting systems.More particularly, the present invention relates to automated systemsfor tracking changes in an investor's basis in an investment. Still moreparticularly, the present invention relates to a computer system foraccurately determining the cost basis of an investment that hasundergone one or more capital events such as, for example a dividendreinvestment event, a stock-split, a spin-off or a merger.

BACKGROUND OF THE INVENTION

[0003] Anyone that prepares their own tax returns can appreciate thedifficulty in determining the gain or loss associated with, for a simpleexample, a mutual fund that has accrued reinvested dividends over aperiod of time. In such a reinvestment situation, each time the mutualfund declares a dividend, additional shares in the fund are purchasedusing the dividend amount and these additional shares are added to theinvestor's holdings. Typically, the price at which the additional sharesare purchased using the dividends will differ from the purchase price ofthe original shares. When the investor's later sells his/her holdings,the purchase price of different groups of shares held by the investorwill therefore typically be different, as such groups of shares werepurchased at different times. In order to properly calculate the gain orloss associated with the transaction, an investor must typically reviewall past statements associated with the mutual fund, associate theoriginal purchase price with the originally purchased shares, a secondpurchase price with the shares resulting from the first dividendreinvestment, a third purchase price with the shares resulting from thenext dividend reinvestment, and soon. Then, for each group of shareswith a given purchase price, the investor must calculate the gain/lossfor each group of shares. Thereafter, the individual must aggregate thegain/loss amounts for all such groups to determine the total gain/lossfor the investment. This is a tedious and time-consuming process thatincludes multiple possibilities for accounting errors that can result inan incorrect determination of the gain/loss associated with theinvestment. Other capital events such as, stock-splits, spin-offs andmergers, present similar difficulties.

[0004] It is an object of the present invention to provide a system andmethod that ameliorates the above difficulties by automaticallyadjusting the cost basis associated with the purchase of an investmentso as to compensate for capital events such as dividend reinvestments,stock-splits, spin-offs and mergers, that occur while such investmentinstruments is held by an individual.

[0005] This and other objects of the invention will become apparent fromthe description that follows.

SUMMARY OF THE INVENTION

[0006] The present invention is directed to a computer-implementedmethod and apparatus for determining a cost basis associated with aninvestment. The investment may be in the form of a security orsecurities with which capital events can be associated. The term“security” is hereinafter used to refer to all investments havingcapital events, and include investments traded in individual units suchas shares as well as investments identified based on a face amount,purchase amount, or other method for defining the value of theinvestment. Information identifying an issuer associated with thesecurity, parameters such as, but not limited to, a purchase date of thesecurity, a number of shares of the security purchased on the purchasedate, and a sale date of the security may be entered into a computersystem. A purchase price for the security on the purchase date may beretrieved from a database coupled to the computer system or from a userof the computer system. Alternatively, a purchase price for the securitycorresponding to the amount paid by the purchaser or may be entered.Next, in response to the information identifying the issuer, thepurchase date and the sale date, a list of capital events that occurredin connection with the security between the purchase date and sale datemay be retrieved from the database. The list of capital events includesat least one event selected from the group consisting of a distributionreinvestment event, a spin-off event, a merger event and a split event.The database stores past price information and capital events for aplurality of different of securities associated with different issuers.The plurality of different securities for which information is stored inthe database may include, for example, common stocks, mutual funds,options warrants, and closed end bond funds. Shares held adjustmentratios related to one or more events may also be retrieved from thedatabase. The term “Shares Held Adjustment Ratio” is used to refer to aninvestment quantity factor reflecting a quantitative change in theholding of an investor, and is not limited to investments traded asshares, but includes all investments having some measure of quantity.Each of the shares held adjustment ratios may correspond to a capitalevent that occurred in connection with a security between the purchasedate and the sale date. A current cost basis associated with thesecurity may then be determined.

[0007] In a preferred embodiment, a current cost basis associated with asecurity is determined initially by applying a first shares heldadjustment ratio associated with an event to the purchase price pershare of the security. If multiple shares held adjustment ratios wereretrieved from the database, then intermediate cost bases may bedetermined by iteratively and cumulatively applying factors associatedwith capital events to the basis of the investment until a final basisis determined. In this preferred embodiment, the cost adjustmentinformation associated with each event retrieved from the database hasan event date associated therewith and is applied to the current costbasis in a chronological order such that the cost adjustment informationassociated with the latest capital event date is applied in the finaliteration of the process.

[0008] In accordance with a further aspect, the shares held basisadjustment ratio associated with each stock-split event stored in thedatabase corresponds to a number of additional shares of a givensecurity issued for each share of the given security held prior to suchstock-split event; the shares held adjustment ratio associated with eachmerger event stored in the database corresponds to a number of shares ofa security associated with a merged entity issued for each shareassociated with an issuer that merged into the merged entity; and theshares held basis adjustment ratio associated with each spin-off eventstored in the database corresponds to a number of shares of a securityassociated with a spun-off entity issued for each share associated withan issuer that divested the spun-off entity.

[0009] In accordance with a still further aspect the database stores thecapital events for the plurality of different securities in a firsttable. For each capital event stored in the first table, the databasemay include fields corresponding to the stock symbol of the companyassociated with such capital event, a date of such capital event, a typeof such capital event, a shares held adjustment ratio associated withsuch capital event, and where applicable, the company's role in suchcapital event, the company's partner in such capital event and thesubscription rate in such capital event.

[0010] In addition for each company or security that contains a capitalevent stored in the first table, the database may include a second tablethat contains fields for the name of the company, a stock symbolassociated with the company, a CUSIP number associated with the company,a begin and end date for when such company first and last traded in themarket and a field that stores a value correlating the stock symbolassociated with such company. The value correlating the stock symbol,company name and CUSIP number may be used to identify an issuerassociated with a given security in the database as such companyundergoes merger events, spin-off events and name change events.

[0011] In accordance with a still further aspect, the database may storeprice information for each of the plurality of securities in a thirdtable. For each date for which price information is stored in the thirdtable, the database may store a company identifier, a high price, a lowprice, an open price and a close price for each of the plurality ofsecurities referenced in the database.

[0012] In accordance with a still further aspect, the database stores acomplete list of all the companies of securities that once traded on anyof the exchanges and have later filed for bankruptcy and/or have beende-listed from the exchange from which it traded. The capital events inconnection with each of the defunct companies will also be stored in thedatabase. The computer system will trace the history (if any) of capitalevents of any given defunct company and provide the necessaryinformation so that the investor has the information needed to determinethe worthlessness of the security.

[0013] In accordance with a still further aspect, the database may storea list of the high/low closing and opening prices of all equity andindex options that once traded on an exchange If the investor is notaware of the exact date of when a option was either purchased or sold,the system may search for an average. The cost basis of an option inconnection with/without its underlining security may be determined basedon whether the option was exercised, expired, or the position was closedin the market. If a purchased call or put were sold on the exchangeprior to expiration, the system could automatically determine thedifference between the cost and the amount received as either along-term or short-term capital gain or loss, depending on the holdingperiod.

[0014] In accordance with a still further aspect, the database may storea list of rights or warrants of underlying securities on exchanges. Ifan investor is not aware of an exercise price, cost basis or issue dateof a warrant/rights offering, the system may search the database for theinformation requested by the user. In retrieving the adjusted cost basisof a stock and stock rights, the system may automatically determinewhether the stock rights were taxable or nontaxable.

[0015] This application claims priority from U.S. Provisionalapplication No. 60/200,088, filed Apr. 27, 2000. This application isincorporated in its entirety herein by reference thereto.

BRIEF DESCRIPTION OF THE DRAWINGS

[0016] The features, objects, and advantages of the present inventionwill become more apparent from the detailed description set forth belowwhen taken in conjunction with the drawings.

[0017]FIG. 1 depicts a graphical user interface for inputtinginformation such as an issuer associated with a given security, apurchase date of the security, a number of shares of the securitypurchased on the purchase date, and a sale date of the security into acomputer system, in accordance with a preferred embodiment of thepresent invention.

[0018]FIG. 2 depicts an exemplary portion of a database table forstoring price information for each of a plurality of differentsecurities over a given period of time.

[0019]FIG. 3 depicts an exemplary portion of a database table forstoring information identifying capital events that have occurred over agiven period of time in connection with various securities such as thoselisted in the database table of FIG. 2.

[0020]FIG. 4 depicts an exemplary portion of a database table forstoring association information identifying securities.

[0021]FIG. 5 is a flow diagram showing the overall operation of asoftware system for determining a cost basis associated with a security,in accordance with a preferred embodiment of the present invention.

[0022]FIG. 6 is a flow diagram showing a system for adjusting the costbasis of a security that has undergone a stock spin-off event.

[0023]FIG. 7 is a flow diagram showing a system for adjusting the costbasis of a security that has undergone a stock split event.

[0024]FIG. 8 is a flow diagram showing a system for adjusting the costbasis of a security that has undergone a distribution reinvestmentevent.

[0025]FIG. 9 is a flow diagram showing a system for adjusting the costbasis of a security that has undergone a merger event.

[0026]FIG. 10 is a flow diagram showing a system for adjusting the costbasis of a security that has undergone a de-listing event.

[0027]FIG. 11 is a flow diagram showing a system for adjusting the costbasis of a security that has undergone a worthless security event.

[0028]FIG. 12 is a flow diagram showing a system for adjusting the costbasis of a option security.

[0029]FIG. 13 depicts a graphical user interface for outputting theadjusted cost basis associated with a given security in response to theinformation inputted into the system via the graphical user interfaceshown in FIG. 1, in accordance with a preferred embodiment of thepresent invention.

[0030]FIG. 14 is a block diagram showing the components of a system fordetermining a cost basis associated with a security, in accordance witha preferred embodiment of the present invention.

DETAILED DESCRIPTION OF THE PREFERRED EMBODIMENT

[0031] The present invention functions to ascertain the historical costbasis of investments, including but not limited to stocks, bonds andmutual funds, and can be implemented remotely through, for example, theInternet or on a stand alone computer. By way of an overview, in thepreferred embodiment, the present invention determines an accurate costbasis for a given investment regardless of the investment's history ofcapital changes such as stock splits, spin-offs, mergers, rightofferings, original discount values, special dividends and distributionreinvestment options. The present invention calculates and displays thecost basis of a stock, a stock option, mutual fund or any otherinvestment through an easy to use graphical-user interface. Theinvention incorporates a database that accesses historical informationfor various securities including daily opening, high, low and closingprices, spin-offs, mergers, stock splits, rights offerings, rightredemptions, special dividends, return capital, original issuediscounts, and dividend reinvestment programs in multiple buyingperiods.

[0032] In a preferred embodiment, after being provided with a companysymbol or CUSIP number associated with a given investment (if not known,a directory of companies and their corresponding symbols are preferablyautomatically provided), the date of purchase or acquisition (if theprecise date is not known, an average price for any given month or yearcan be provided), and the original number of shares purchased oracquired (such information is preferably entered using the screen shownin FIG. 1), the present invention automatically determines an adjustedcost basis per share and this information, together with any adjustednumber of shares are provided to the user via a separate screen such asthat shown in FIG. 13. Alternatively, a purchase price for a securitymay be provided by a user, especially where the purchase price of thesecurity may vary through a purchase date. In order to determine thegain/loss associated with the transaction, the user can simply subtractthe sale price of the shares associated with the investment (common toall shares sold) from the adjusted cost basis output of the presentinvention (this figure is also common to all shares associated with thetransaction) to determine the gain/loss. On the cost basis screen shownin FIG. 1, the closing price on the date of purchase is made availableto the user as a beginning reference point if needed, i.e., if the userdoes not have such information, the information may be automaticallyretrieved from a database, such as that shown in FIG. 2.

[0033] The present invention thus uses the informationprovided/retrieved in connection with the screen shown in FIG. 1 toautomatically retrieve historical information associated with thesecurity. The system may then locate the closing price on the purchaseor acquisition data of the investment and compile forward any and allrelative capital changes that would effect the basis of the investment.The system may distinguish among various types of capital changes andapply the correct adjustments to the investment's cost basis and numberof shares accordingly.

[0034] Referring now to FIG. 2, there is shown an exemplary portion of adatabase table 200 for storing price information for each of a pluralityof different securities over a given period of time in accordance with apreferred embodiment of the present invention. Database table 200 storeshistorical price information for each of a plurality of securities. Foreach date covered by the database table, the database may store a highprice 206, a low price 208, an open price 210 and a close price 212 forsecurities referenced in the database. Securities having a single priceper day, such as mutual funds having a Net Asset Value at close oftrading, may be reported by only the Net Asset Value, or by a net AssetValue and a Sale Price 214 for the day. It will be understood by thoseskilled in the art that other database structures could be used forstoring the information shown in FIG. 2, and that such modifications arewithin the scope of the present invention.

[0035] Referring now to FIG. 3, there is shown an exemplary portion of adatabase table 300 for storing information identifying capital eventsthat have occurred over a given period of time in connection with thevarious securities listed in the database table of FIG. 2. Such capitalevents may include, for example, spin-offs, mergers, stock splits,rights offerings, right redemptions, special dividends, return capital,original issue discounts and dividend reinvestments. Database table 300thus stores the capital events for the plurality of different securitiesin database table 200. For each capital event stored in the databasetable 300, the database includes fields corresponding to a name of acompany 302 associated with such capital event, a stock symbol 304associated with such capital event, a date 306 of such capital event, atype (e.g., dividend reinvestment, stock split, spin-off, etc.) of suchcapital event 308, a shares held adjustment ratio 310 associated withsuch capital event, and any other information desired to be associatedwith the capital event. Where a capital event involves multiple relatedshares, additional ratios 312 and related shares values 314 can beincluded.

[0036] Referring now to FIG. 4, there is shown an exemplary portion of adatabase table 400 for associating investment names. The table maycontain fields identifying the name of an investment 402, a symbolassociated with the investment 404, a CUSIP number 406 associated withthe investment, a begin 408 and end 410 date for where such companyfirst and last traded and a field that stores a value correlating aninvestment when said investment is associated with multiple issuers,symbols, or CUSIP numbers.

[0037] In the preferred embodiment, database tables 200, 300, and 400store past price information and capital events for a plurality ofdifferent securities associated with different issuers. The plurality ofdifferent securities for which such information is stored in thedatabase include, for example, common stocks, mutual funds, closed endbond funds, and options.

[0038] The shares held adjustment ratio stored in the database for agiven capital event reflects the type of the capital event and thefinancial particulars associated with the given capital event. Thefollowing examples demonstrate how the cost basis is determined for someof the different capital events that are processed by the presentinvention:

EXAMPLE 1

[0039] Spin-Off Event

[0040] The ABC company has outstanding Common Stock. On 06/30/99, theABC Company spins off a subsidiary named the XYZ Company for a 2-to-1ratio. As a result of this spin-off event, for every 1 share of ABCCommon Stock held by an investor, the investor will receive 2 shares ofthe new XYZ Company. Thus, an investor that holds 100 shares of the ABCCompany prior to the spin-off will receive 200 shares of the XYZ Companyand, following the spin-off, the investor will hold his original 100shares of ABC Common Stock and 200 shares of the XYZ Company. The sharesheld adjustment ratio stored in the database for this capital eventcorresponds to the number of shares of the spun-off entity (e.g. the XYZCompany) issued for each share associated with the company that divestedthe spun-off entity (e.g., the ABC Company). In this example, the sharesheld adjustment ratio stored in the database for the capital event wouldtherefore equal 2.0, while the records associated with the original ABCCommon Stock would also reflect a name association with the new XYZCommon Stock.

[0041] For example, if an investor had purchased 100 shares of ABCcompany stock on Jan. 1, 1999 for $10 per share, and the values of ABCand XYZ stock were $5.00 and $2.50 per share respectively. The totalbasis ($1000) associated with the shares purchased on Jan. 1, 1999,would have to be distributed between the new ABC and XYZ shares,dependant on the relative values of the shares at the time of thespin-off. The weighted values of the shares at the time of distribution,along with the distribution ratios, would yield the cost basisallocation associated both with the original shares of ABC and for thenew shares of XYZ.

[0042] A basis allocation ratio associated with the original sharescould be calculated by dividing the value per share of the ABC shares atthe time of the spin-off divided by the sum of the values associatedwith each share resulting from the spin-off. For example, as obtainedfrom reference to a database, the prices for the ABC and XYZ shares,referred to hereafter as pABC and pXYZ respectively, could be $5.00 and$2.50. As such, the allocation ratio for the ABC stock utilizing theshares held ratios (nABC and nXYZ) in conjunction with the priceinformation can be written as:${AR}_{ABS} = \frac{pABC}{\left( {{nABC}*{pABC}} \right) + \left( {{nXYZ}*{pXYZ}} \right)}$

[0043] Substituting the known values for the example yields anallocation ratio of 0.50. Applying this ratio to the basis per share ofthe originally held ABC common stocks would yield a basis per share of$5.00. An allocation ratio for the new XYZ common stock could besimilarly determined, with an allocation ratio of 0.25 being determined.Applying the allocation ratio to the basis per share of the original ABCcommon stock would yield a basis per share of $2.50 per share of XYZcommon stock.

EXAMPLE 2

[0044] Stock-Split Event

[0045] The ABC company has outstanding common stock. On 06/30/99, theABC Company splits its shares in a 3-for-1 stock-split. As a result ofthis stock-split, for every 1 share of ABC common stock held by aninvestor prior to the stock split, the investor will receive anadditional 2 shares of common stock of the ABC Company. Thus, aninvestor that holds 100 shares of the ABC Company prior to thestock-split will receive 200 further shares of the ABC Company as aresult of the stock-split. Following the stock-split, the investor willhold his/her original 100 shares of ABC Common Stock and 200 furthershares of the ABC Company. The shares held adjustment ratio stored inthe database for this capital event may be determined as follows:

SHAR=(number of shares issued per share)+1.0

[0046] In this example, the shares held adjustment ratio stored in thedatabase for this capital event would therefore equal 3.0. A basisallocation ratio would simply be ¹/(n ABC), or 0.333. Applying thisallocation ratio to the prior basis per share would thus distribute onethird of the prior basis per share to each share held after the split.

EXAMPLE 3

[0047] Merger Event

[0048] The ABC company has outstanding Common Stock. On 07/30/99, theABC Company merges with the XYZ Company on a 2 for 1 ratio. As a resultof this merger, for every 2 shares of ABC Common Stock held by aninvestor prior to the merger, the investor exchanges such shares for 1share of Common Stock of the merged ABC/XYZ Company. Thus, an investorthat holds 200 shares of the ABC Company prior to the merger willexchange such shares for 100 shares of the merged ABC/XYZ Company and,following the merger, the investor will hold only 100 shares of themerged ABC/XYZ Company (and none of his/her original 200 shares of ABCCommon Stock). The shares held adjustment ratio stored in the databasefor this capital event is a number of shares of a security associatedwith the merged entity (e.g., the ABC/XYZ Company) issued for each shareassociated with an issuer (e.g., the ABC Company) that merged into themerged entity. In this example, the shares held adjustment ratio storedin the database for this capital event would therefore equal 0.5. Anassociation between the identify of the ABC shares held before themerger with the XYZ shares post merger would also be created.

EXAMPLE 4

[0049] Distribution Reinvestment Event

[0050] A distribution of dividends or capital gains allocations from astock or mutual fund may result in the acquisition of additional sharesof the stock or mutual fund through a distribution reinvestment. Thedistribution is generally taxable at the time it issues (unless held aspart of a deferred income plan such as an IRA), and as such can affectthe basis of the underlying investment from which the distribution wasissued.

[0051] For example, an investor may have purchased 100 shares of XYZstock at $10 per share on Jan. 1, 1999. On Dec. 28, 1999, the XYZcompany may have issued a dividend of $0.50 per share, which theinvestor may have elected to have reinvested. The cash value of thedistribution to the investor would have been $50. If the per share priceof the investment on Dec. 28, 1999 was $12.50 per share, thereinvestment would have resulted in the purchase of an additional 4shares of XYZ. As such, a shares held adjustment ratio of 1.04 would bestored, determined by dividing the distribution per share by the priceper share at the time of the distribution, and adding one (representingeach originally held share) to arrive at a shares held adjustment ratio.

[0052] Alternatively, a shares held adjustment ratio could be determinedwithout directly retrieving a SHAR value from the database. Since theSHAR value can be readily determined from the distribution amount andpurchase price on the day of the distribution. SHAR can be calculated as${SHAR} + \frac{({DIST})}{({PricePerShare})}$

[0053] The timing of the sale of the shares of the XYZ company mayimpact the tax consequences of a sale of the shares. As such, thepurchase date of each group of shares may need to be remembered forreporting purposes at a later date. Accordingly, the basis of the sharescan be tracked per group or aggregated.

[0054] If the basis is to be tracked for each group of XYZ stock basedon its purchase date, a distribution reinvestment event would cause ashares held adjustment ratio of 1.0 to be applied to the quantity of theshares held immediately prior to the distribution event, as well as thecreation of a new group of shares (purchased on the date of thedistribution event), where the basis for the new group would bedetermined by the purchase price of the shares. As such, no allocationratio would need to be applied to either group of shares, as the basisfor the originally held shares would not change, while the basis for thenewly acquired shares would be the price of the shares at the time ofthe reinvestment.

[0055] Alternately, where distributions of more than one type occur onthe same day, a distribution reinvestment event could include a dividenddistribution as well as a capital gain distribution. It will beunderstood by those skilled in the art that such a distribution could betreated as a single distribution event, or as multiple distributionevents based on the type of distribution which has occurred.

EXAMPLE 5

[0056] Worthless Security Event

[0057] For this example, assurance the ABC Company was delisted from theNew York Stock Exchange in 1997, and afterwards filed for bankruptcy twoyears later. The investor who purchased the now defunct company stockbefore 1997 may not be aware of this recent development. In order forthe investor to write off the investment in the year the company filedfor bankruptcy (an IRS requirement to approve the write-off), proof ofthe investment's worthlessness is necessary. The investor may use thedatabase by either entering the company's name, stock symbol or CUSIPnumber and the software may search the database to identify the capitalchange history of the defunct company. If the investment is worthless invalue, the system will identify it and a pop-up window will appear andprovide the user with important information needed to write-off theinvestment. The pop-up window can identify when the security wasde-listed from the exchange it traded on and (if) when the company wentbankrupt or was liquidated.

[0058] A simple de-listing of an investment generally means that themarket price of an investment has dropped below a value criteriaestablished by an exchange. The investment does not necessarily losevalue, nor is the basis or number of shares held adjusted by the event.As such, a de-listing event may have a shares held adjustment rate of 1associated with the event.

[0059] A liquidation type bankruptcy may result in the value ofinvestments becoming zero. This is particularly the case with equityinvestments, such as common stocks. The basis in the shares does notchange, nor does the number of shares held. As such, the shares heldadjustment ratio associated with such an event would be 1. This is aworthless security event.

[0060] Other forms of bankruptcy may also occur, such that the eventassociated with the bankruptcy may be comparable in form to a merger orsplit event. Such a situation arises where originally held investmentsare converted to a newly issued investment at a discounted rate. Such anevent may occur as part of a reorganization bankruptcy. For example, asa means for gaining shareholder approval for a reorganization plan, theshareholders may be offered a fractional amount of stocks in areorganized company in exchange for ratification of the reorganizationplan. The basis of the originally held shares may either be fullyassociated with the new shares, or may be separated as a capital lossassociated with the event.

EXAMPLE 6

[0061] Put Options

[0062] On Apr. 11, 2000, an investor sold an ABC May put options at astrike price of $50 per share for a premium of $2.00 per share.

[0063] In May the ABC put options were exercised due to the underlyingstock reached $50 or higher. The investor retains the premium, however,must purchase the underlying ABC stock at the strike price.

[0064] The investor may use the application and database to determinethe accurate cost basis for her ABC stock. The system will automaticallydeduct the amount of the premium received by the investor to thesecurity's purchase price. The adjusted cost basis for the ABC stock isthen determined to be $48 per share.

[0065] The system will also automatically determine an accurate costbasis for the other side of the transaction as well. For example, theinvestor who brought the ABC put options at the strike price of $50 pershare for $2.00 can also retrieve an adjusted cost basis using thedatabase system. The application can determine the amount realized onthe sale of the ABC stock by deducting the premium paid when the optionwas exercised. The system will then determine that the adjusted costbasis for the ABC stock is also $48 per share.

EXAMPLE 7

[0066] Options (Calls/Puts) With Stock

[0067] On Jan. 1, 2001, an investor purchased 200 shares of XYZ Companycommon stock at a price of $25 per share for a total cost of $5,000. Theinvestor also sold an XYZ February covered call option at a strike priceof $35 per share for a premium of $1.50 per share. The investor receiveda premium total of $300 for the covered call option sold.

[0068] In February the XYZ covered call options were exercised when theunderlying XYZ stock reached $35 or higher. The investor retained thepremium of $300, however, must sell the XYZ stock at a price of $35 pershare.

[0069] The investor may use the application and database to determinethe accurate cost basis for his XYZ stock coupled with the covered calloption as a combined investment strategy. The system will automaticallyapply the premium received by the investor and add that amount fromhis/her original cost basis of $5,000. The adjusted cost basis for XYZis then determined to be $5,300 or $26.50 per share.

[0070] The system will also automatically determine an accurate costbasis for the other side of the transaction as well. For example, theinvestor who brought the 200 shares of the XYZ stock at the strike priceof $35 per share can also retrieve an adjusted coast basis using thedatabase system. The application can retrieve an accurate cost basis byapplying the premium paid for the call option of $300 to the amount paidfor the XYZ stock of $5,000. The system will then determine that theadjusted cost basis for the XYZ stock is also $5,300 or $26.50 pershare.

[0071] Returning now to FIG. 4, for each capital event stored in table400, the database further preferably includes a field that stores avalue correlating the stock symbol and the CUSIP number associated withsuch capital event. The value correlating the stock symbol and the CUSIPnumber uniquely identifies an issuer associated with a given security inthe database as such issuer undergoes historical capital changes such asmerger events, spin-off events and name change events. The valuecorrelating the stock symbol and the CUSIP number acts as a safeguard inthe event the stock symbol and/or CUSIP no longer applies as a result ofa historical capital change, and is particularly useful for trackingstocks that have undergone capital events such as name changes, mergers,obsolete securities (where an old ticker symbol previously associatedwith a given stock has been reassigned and/or where the CUSIP numberpreviously associated with a given stock becomes obsolete), and when thesecurity changes the exchange which it trades on (for example, from theNASDAQ to the NYSE).

[0072] An example of a name change occurred when International Harvesterchanged its name to Navistar. In this case, the stock symbol for thesecurity changed. An example of a merger occurred when Travelers mergedwith Citicorp to form Citigroup. In this case, both the Citicorp andTravelers stock symbols were reassigned and Citigroup was assigned theold stock symbol for Chrysler (which was merged into DaimlerBenz andhence ceased to exist under the name Chrysler.) The CUSIP numbers forthese entities also changed as a result of these capital events. In thecase of obsolete securities, the company symbols and CUSIP numbers areno longer used once the stock is de-listed. Finally, when a securitychanges the exchange on which it trades, the company is assigned a newstock symbol and the old stock symbol previously used by the company iseither no longer used or re-assigned.

[0073] Accordingly, in the present invention, a value correlating thestock symbol and the CUSIP number (e.g., a 10 digit alpha numericinternal identification number) is preferably permanently assigned toevery security referenced in the database. This internal identificationfollows the security through time in the database, where other trackingmethods such as CUSIP's and stock symbols fail.

[0074] Referring now to FIG. 5, there is a flow diagram showing theoverall operation of a software system 500 for determining a cost basisassociated with a plurality of shares of a security, in accordance witha preferred embodiment of the present invention. In step 510,information identifying an issuer associated with the security, apurchase date of the security, a number of shares of the securitypurchased on the purchase date, and a sale date of the security isentered using, for example, the interface shown in FIG. 1. In step 510,a purchase price per share of the security on the purchase date is alsoeither retrieved from database table 200 or from the user if the userhas such information available. Next, in step 520, in response to theinformation identifying the issuer, the purchase date and the sale date(input in step 510), a list of capital events that occurred inconnection with the security between the purchase date and sale date isretrieved from database table 300. One or more shares held adjustmentratios are also retrieved from the database in step 520. Each of theshares held adjustment ratios corresponds to one of the capital eventsthat occurred in connection with the security between the purchase dateand the sale date. In steps 530-560, a current cost basis associatedwith the security may then be determined in accordance with the one ormore shares held adjustment ratios and the purchase price per share ofthe security.

[0075] In a preferred embodiment, a current cost basis associated withthe security is preferably determined (in steps 530-560) initially byapplying a first shares held adjustment ratio to the purchase of thesecurity. If multiple shares held basis adjustment ratios were retrievedfrom the database in step 420, then an intermediate cost basis may beassigned to be equal to the current cost basis. For each further sharesheld adjustment ratio retrieved from the database in step 420, thecurrent cost basis is then adjusted again by applying a further sharesheld adjustment ratio to the intermediate cost basis. This process isthen repeated until each further shares held adjustment ratio retrievedfrom the database has been used to adjust the current cost basis. Inthis preferred embodiment, each further shares held cost adjustmentratio retrieved from the database has an event date associated therewithand is applied to the current cost basis in a chronological order suchthat the cost adjustment ratio associated with a latest event date isapplied in the final iteration of the process.

[0076] Although the above contemplates retrieving all capital eventsbefore applying them to the basis of a security, the capital events canbe retrieved and applied sequentially for each capital event stored. Thecapital events should be applied chronologically to accommodateaccounting and tax reporting requirements.

[0077] Thus, for example, if for a given investment four capital eventsoccurred between a purchase date of 01/01/99 and a sale date of12/31/99, i.e., a reinvested dividend on 01/31/99, a merger on 02/28/99,a stock-split on 03/31/99 and a spin-off on 04/30/99, then in step 520,a list of four capital events would be retrieved from database table300. In addition, four shares held adjustment ratios (each correspondingto one of the four capital events) would also be retrieved from thedatabase. In the steps that follow, the current cost basis associatedwith the security would then be determined in accordance with the fourshares held adjustment ratios and the purchase price per share of thesecurity. In particular, in this example, the current cost basisassociated with the security would initially be adjusted (in step 550which is used for processing dividend reinvestments) by applying thefirst shares held adjustment ratio associated with the first capitalevent to the purchase price per share of the security. Next, sincemultiple shares held basis adjustment ratios were retrieved from thedatabase in step 520, an intermediate cost basis is assigned to be equalto the current cost basis. Thereafter, the current cost basis isadjusted again (this time in step 560 which is used for processingmergers) by applying the second shares held adjustment ratio associatedwith the second capital event to the intermediate cost basis. Thisprocess is then repeated until each further cost basis adjustment ratioretrieved from the database has been used to adjust the current costbasis. Accordingly, in the given example, the intermediate cost basis isre-assigned to be equal to the current cost basis (as adjusted using thesecond shares held adjustment ratio), and the current cost basis isadjusted again (this time in step 540 which is used for processing stocksplits) by applying the third shares held basis adjustment ratioassociated with the third capital event to the intermediate cost basis.Finally, in the given example, the intermediate cost basis isre-assigned yet again to be equal to the current cost basis (as adjustedusing the third shares held adjustment ratio), and the current costbasis is adjusted again (this time in step 530 which is used forprocessing spin-offs) by applying the fourth shares held adjustmentratio associated with the fourth capital event to the intermediate costbasis. The current cost basis as adjusted using the fourth shares heldadjustment ratio is then preferably output to a user via the screenshown in FIG. 10.

[0078] Referring now to FIG. 6, there is shown a flow diagram showing asystem for adjusting the cost basis of a security that has undergone astock spin-off event, in accordance with the present invention. FIG. 6will be described using the following example: Company A spins-offCompanies B and C, and prior to the spin off, the investor's averagecost basis for each share Common Stock of Company A was $5/share. Forthe new companies (i.e., Companies B and C), the day of the spin-off isdeemed to be the day that the new company first traded separately. Theaverage prices, at the time of the spin-off, are: Price for Company AStock=pA=$4/share; Price for Company B Stock=pB=$3/share; and Price forCompany C Stock=pC=$2/share.

[0079] In Step 604, the process retrieves a first shares held adjustmentrate (SHAR₁). In Step 606, the process retrieves an identifier for therelated investment (REL STOCK₁) associated with the first shares heldadjustment rate (SHAR₁). The process may then retrieve the prices of theshares on the spin-off date 608. If it is determined 610 that there aremore spun off companies, the process may continue to retrieve sharesheld adjustment ratios and related investments until all spun offcompanies have been identified. At this point, the process will haveaccumulated all of the spin-off stock information. New shares heldinformation can be determined 612 by multiplying each shares heldadjustment ratio (SHAR₁, SHAR₂, . . . ) by the number of shares heldprior to the spin-off event. Each new group of spin-off shares(SHAR₁*REL. STOCK₁, SHAR₂ *REL. STOCK₂, . . . ) may then be separatedfor further tracking. A basis allocation factor for each group may becalculated 614 using weighted averages based on the number and values ofthe shares involved in the spin-off event. The allocation factors maythen be applied 616 to the original basis to determine the basis in eachgroup of shares.

[0080] Where the prices are for a mutual fund with a single price on agiven day, the actual cost basis adjustment ratios for each of theCompany A, B, and C investments can be stored. Where high, low, andaverage prices are being used to ascertain a strategy with the highestreturn to an investor, the individual prices per share (high, low, andaverage) may alternately be stored, with ratios calculated from theindividual prices, or three cost basis adjustment ratios may be storedcorresponding to a high strategy, a low strategy, and an averagestrategy.

[0081] For the values of Company A, B, and C shares described above, thecost basis adjustment ratio (in a form relating the basis per shareafter an event to the basis per share before the event) for theoriginally held shares in Company A could be calculated as:${CABR}_{A} = \frac{{nA}*{pA}}{\left( {{nA}*{pA}} \right) + \left( {{nB}*{pB}} \right) + \left( {{nC}*{pC}} \right)}$

[0082] where nA, nB, and nC are the number of shares received per shareof the investment which underwent the spin-off. Using pA=$4, pB=$3, andpC=$2, and assuming that one share of Company B and one share of CompanyC were distributed for each ten shares of Company A stock held (i.e.,nA=1, nB=0.1, and nC=0.1), the value of CBARA would be 0.8888. Applyingthis CBAR to the basis in the originally held shares of company A wouldyield a basis of $4.444 per share. By substituting pB, and pC into thenumerator, cost basis adjustment ratios could likewise be determined fora basis in the newly held shares of Company B and C. Using the abovevalues for pB and pC, CBARB would be 0.0667, and CBARc would be 0.0444.The basis for the newly held shares of Company B and Company C would bedetermined by applying the relevant CBAR's to the original per sharebasis of Company A stock held.

[0083] Referring now to FIG. 7, there is shown a flow diagram showing asystem for adjusting the cost basis of a security that has undergone astock split event, in accordance with the present invention. In step704, a shares held adjustment ratio (SHAR₁) associated with thestock-split event is retrieved from database table 300. The number ofshares held by the investor is then adjusted 706 based on the sharesheld adjustment ratio value. Thus, for example, if Company X had a3-for-1 stock split, and an investor held 100 Shares of Company X priorto the stock split, the number of shares held by the investor would beadjusted by multiplying the previous shares held by the investor by theshares held adjustment ratio. In the example, the above shares heldadjustment ratio would be 3 and the adjusted number of shares wouldtherefore be equal to 300. In step 708, the cost basis of the investmentper share is similarly adjusted by dividing the investor's average costbasis for each share Stock of Company X prior to the split by anallocation ratio as discussed above. In assessing the effect of the nextsubsequent capital event on the cost basis of the shares of Company X,the present invention will use the adjusted cost basis yielded by thisstep 708 as a new starting point and then adjust this value to reflectthe effect of such further capital event.

[0084] Referring now to FIG. 8, there is shown a flow diagram showing asystem for adjusting the cost basis of a security that has undergone adistribution reinvestment event. FIG. 8 will be described using thefollowing example: An investor owns 100 shares of Company YB stock, andprior to the dividend event, the investor's cost basis for each sharewas $5 per share. The investor's total basis for the 100 shares wouldtherefore be $500. On 09/01/00, Company YB declared a dividend of $0.25per share through a reinvestment plan, wherein the price per share ofthe Company Y stock at the time of the reinvestment was $10 per share.In connection with this example, a shares held adjustment ratio of 1.025would be stored.

[0085] In step 802, the system retrieves from the database table 200 thereinvestment price of the stock (e.g. the Company Y shares, noted asrpY), and retrieves 804 the shares held adjustment ratio for thedistribution event (which may be retrieved from Table 300). From theshares held adjustment ratio (nY) and the reinvestment price (rpY),(which may be retrieved from table) the distribution per share (d/s) ofthe Company Y stocks may be determined:

d/s(nY−1)*rpY

[0086] Alternately, the distribution per share value can be stored intable 300. In step 806, the number of newly acquired shares may bedetermined by applying the shares held adjustment ration minus one tothe original number of shares held, or:

NewShares=(nY−1)*OriginalShares

[0087] In step 808, the new adjusted cost basis (NACB) per share may bedetermined by: ${NACB} = \frac{\left( {{d/s} + {b/s}} \right)}{nY}$

[0088] Alternately, the new shares can be grouped 808 for furthertracking, with the basis of the original shares unchanged, and set 810the basis of the new shares equal to the purchase price of the newshares. In this situation, an average basis/share can be determined bysumming the total basis associated with each group of shares, anddividing by the total number of shares. For the described example, thebasis per share before the event plus the distribution per share wouldbe $5.25, which when divided by the shares held adjustment ration (nY)would yield a $5.048 basis per share. The process must track the numberof new shares, or the number of original shares and the group of newshares, through subsequent events.

[0089] Referring now to FIG. 9, there is shown a flow diagram showing asystem for adjusting the cost basis of a security that has undergone amerger event, in accordance with the present invention. FIG. 9 will bedescribed using the following example: An investor owned 100 sharesCompany ABC, and prior to the merger event, the investor's average costbasis for each share Company A Stock was $5/share. Company ABC thenmerged into Company XYZ and every share of Company ABC stock was swappedfor 2 shares of Company stock. The shares held adjustment ratio storedin the database 300 for this capital event would therefore equal 0.5. Instep 906, a new number of shares (of Company B Stock) is determined byapplying the shares held adjustment ratio (retrieved 902 from database300) to the previous number of shares held by the investor.

[0090] In step 908, a new average cost basis per share may be determinedby applying the reciprocal of the shares held adjustment ratio to theprevious average cost basis per share of the investment ($5/share).Thus, the new average cost basis per share is:

New cost basis/share=$5/share*(½)=$2.5 per share

[0091] In assessing the effect of the next subsequent capital event onthe cost basis of the shares of Company XYZ, the present invention willuse the adjusted cost basis yielded by this step 908 as a intermediatevalue and then adjust this value to reflect the effect subsequentfurther capital events. Since the company identifier will no long existafter the merger, the system will track the basis of the shares byapplying events associated with the newly held security.

[0092] Referring now to FIG. 10, there is shown a process for resolvinga de-listing event. De-listing events may be stored in Table 300. Once ade-listing event has been noted 1002, the process may search forward todetermine if the investment has been re-listed. If it is determined 1006that the investment has been re-listed, the process may return toprocessing capital events. If it is not determined 1006 that theinvestment has not been re-listed, the process notifies 1008 the user ofthe de-listing event, and the basis of the investment at the de-listingdate.

[0093] Referring now to FIG. 11, there is sown a process for resolving aworthless security event. Once a worthless security event has beenidentified, 1102, the process may determine whether shares in a reformedcompany were exchanged for the worthless shares. If no shares wereexchanged, the user may be informed of the worthless share event, thebasis of the time of the event, and the date on which it occurred suchthat an investor can properly record a capital loss associated with theevent.

[0094] If new shares were exchanged, a shares held adjustment ratio(SHARex) can be retrieved, and a new shares held value may bedetermined. The basis of the new shares held may be determined 1112 fromthe value of the shares on the exchange date. The new shares may then beassociated 1114 with the basis calculation. A capital loss associatedwith the event can be determined 1116, and reported 1106 to the user.

[0095] Now referring to FIG. 12, there is shown a process for handlingoption investments. In accordance with a still further aspect, thedatabase may store a list of all high/low closing and opening prices ofequity and index options traded on an exchange. An option is aninstrument giving the holder the right to buy or sell an investment at apredetermined price. Accordingly, the instrument itself may be valuedand traded on an exchange, as well as exercised. Such options may becharacterized by the contracted investment price, as well as anexpiration date after which the option cannot be exercised.

[0096] If an investor is not aware of the exact date on which an optionwas either purchased or sold, the system may search for average values.

[0097] The cost basis of an option is determined by its purchase price.The option may have a sale value associated, such that sale of theoption or options results in a capital gain or loss, based on the saleprice and basis in the held shares.

[0098] An option traded without being exercised may be treated similarlyto other investment vehicles. The sale price minus the basis providesthe determination of capital gain or loss. If the option expires, theoption may become valueless, similar to a worthless stock event.

[0099] If the option is exercised, the effect is similar to a merger, inthat the original option ceases to exist, but is replaced by theinvestment to which the option pertained. The execution of the optionrequires the purchase of the investment, albeit at the contract price.Once it has been identified (shown in FIG. 5B) that option shares areinvolved, the user can be queried 1202 to determine whether the optionshares were executed, and if executed, queried 1204 for a date on whichthe options were exercised. If it is determined 1202 that the optionswere executed the basis of shares acquired by exercising the options canbe determined 1206 by adding the purchase price of the shares to thebasis of the options to determine the basis of the new shares. These newshares can then be associated 1208 with the basis tracking event, andthe basis of the new shares tracked 1210. For the purposes of thisdiscussion, it is assumed that the options cease to exist whenexercised, such that the new shares would be tracked forwards.

[0100] If it is determined that the options were not exercised, theoptions would expire. Expiration of the options results in the optionsbecoming worthless. In this event, the process user may be notified 1212of the expiration date for the options, and if it is determined 1214that the options have expired, notified 1216 of the basis of the optionsat the time of expiration, and the need to report the associated capitalloss. Since no shares of a new investment were acquired the process canend or return 1210. Returning 1210 would result in the same outcome,since no further capital events would exist for the expired options.

[0101] Where an investment has underlying rights or warrants, a capitalevent can occur when an investor exercises rights on warrants, eitherconverting a presently held investment, or exercising a right topurchase additional or different shares. These rights can either beassociated with an investment when purchased, or issued by a shareissuer while held by an investor.

[0102] If stock rights were issued while held by an investor, and weretaxable, the system may determine the basis of the rights, as the fairmarket value at the time of the distribution and the basis of theunderlying stock may remain the same. If the stock rights werenontaxable, the system could determine if the fair market value of therights were more or less than 15% of the fair market value of theunderlying stock. If the stock rights had a fair market value of 15% ormore of the fair market value of the underlying stock, the system couldthen divide the adjusted basis of the underlying stock between theunderlying investment and the investment rights. A verified ratio can bedetermined based on the fair market value of each of the underlyinginvestments and the investment rights to the fair market value of bothat the time of issuance of the rights or warrants.

[0103] If fair market value of the stock rights was less than 15%, thesystem will provide the user with both cost basis methods by determiningthe basis as zero or by dividing the basis of the underlining stockbetween the underlining stock and stock rights. If the stock rights wereexercised, the system will determine the basis of the newly acquiredstock. If the rights were sold on the exchange, the system willdetermine its basis as well. The holding period of that underling stockor of the original rights or warrants will also be calculated anddisplayed in the detail screen for tax purposes.

[0104] For example, suppose an investor owned 100 shares of ABC Companystock, which cost $22 per share. The ABC Company issued 10 nontaxablestock rights (0.1 stock right per share) that would allow the investorto buy 10 more shares at $26 per share. At the time the stock rightswere issued, the stock had a market value of $30, not including thestock rights. Each stock right had a market value of $3. The marketvalue of the stock rights was thus less than 15% of the market value ofthe stock and the investor could chose to divide the basis of the stockbetween the stock and the rights. The basis for the underlying stock andthe stock rights would be as follows:

[0105] 100 shares×$55=$5,500, basis of underling stock

[0106] 100 shares×$70=$7,000, market value of underlining stock

[0107] 10 rights×$7=$70, market value of rights

[0108] ($7,000/$7,070)×$5,500=$5,445.39, new basis of underlining stock

[0109] ($70/$7,050)×$5,500=$54.61

[0110] Table 400 could also be sued to store a list of convertiblesecurities. The cost basis and holding period of convertible securitiescan be calculated the same way as other securities, from the day afterthe purchase trade date if the security is not converted. If aconvertible bond is purchased and later converted into another security,the system may adjust the cost basis and holding period of the newsecurity depending upon whether or not money was paid to effect theconversion.

[0111] If capital is not needed to effect the conversion, the system mayautomatically adjust the cost basis and the holding period of the newsecurity to begin on the day after the original convertible security waspurchased. If capital were paid to effect the change, the system couldadjust the cost basis and holding period for the portion of the newlyacquired security attributable to the additional payment that began onthe day after the payment. For the portion not attributable to theadditional payment, the cost basis and holding period would begin on theday after the trade date on which the original convertible security waspurchased.

[0112] If the investor is not aware of the cost basis or acquisitiondate of the convertible security, the system could search the databasefor the information requested by the user. The system will automaticallydetermine the adjusted cost basis and holding period for thatconvertible security based on the information provided above. Theholding period of that convertible security will also be calculated anddisplayed in the detail screen for tax purposes.

[0113] For example, suppose that in September, an investor bought for $1a right issued by ABC Corporation entitling the investor, on payment of$99, to subscribe to a bond issued by that corporation.

[0114] On October 6, the investor exercised the right and subscribed tothe bond, which was issued on October 15. The bond contained a clausestating that the investor would receive one share of ABC Corporationcommon stock on surrender of one bond and payment of $50.

[0115] Later, the investor presented the bond and $50 and received oneshare of ABC Corporation common stock. The investor did not have arecognized gain or loss. The basis of the investor's share of stock is$150 ($1+$99+$50). The investor's holding period would be split. Theinvestor's holding period for the part based on his ownership of thebond ($100 basis) would begin on October 6. The investor's holdingperiod for the part based on his cash investment ($50 basis) would beginon the day after he acquired the share of stock. Each portion of thebasis could be tracked through capital events.

[0116] Additionally, table 400 may be used to store a list of mutualfund securities. If an investor is not aware of the cost basis orpurchase date, the system may search the database for the informationrequested by a user. If an investor is not aware of the adjusted costbasis of the mutual fund due to a series of dividend reinvestment eventsand/or various purchase periods, the system can use an average basismethod. The software can first determine, based on the stock symbol, ifthe mutual fund is equity or fixed income. The system can then ascertainthe difference between ordinary income (which is considered ordinaryincome) and capital gain distributions. The system can identify bothundistributed and distributed capital gains for reporting purposes. Thesystem may increase the cost basis of the mutual fund shares whenundistributed capital gains are realized. The system further identifiesreturn of capital distributions whereby the cost basis of mutual fundshares is reduced. If the mutual fund shares reached a level of zero,the system may then treat the return of capital distribution as acapital gain. When determining the cost basis of mutual fund shares, thesystem can use two methods, specific share identification and First-infirst-out (FIFO), provided the investor did not previously use anaverage basis for the sale of shares of the same mutual fund.

[0117] If the investor can definitely identify the shares sold, once theinformation is entered, the system will use the adjusted basis of thoseparticular shares to determine capital gain or loss. If the shares wereacquired at different times or at different prices and the investorcannot identify which shares were sold, the oldest shares stillavailable are considered sold first.

[0118] The system may also use an average basis if the investor acquiredthe mutual fund shares at various periods and are left on deposit in anaccount handled by a custodian or agent. The system may further identifybetween two methods, a single category method and a double categorymethod.

[0119] In the Single category method, the system may automatically findthe average cost of all shares owned at the time of each disposition,regardless of how long the investor owed them. The system may thendetermine capital gain or loss based on the holding period. Sharesdisposed of are considered to be those acquired first. The system couldadd the cost of all the shares owned (determined by the offer price),divide by the number of shares owned to determine an average basis pershare.

[0120] In the Double category method, all shares in an account at thetime of each disposition are divided into two categories, short-term andlong-term. The system may then identify shares held for one year or lessas short-term. Shares held longer than one year, may be identified aslong-term. The process can the basis of each share as an average basisin that category.

[0121] For an average basis example, suppose an investor bought 400shares in the ABC Mutual fund: 200 shares on Jun. 5, 1998, and 200shares on May 15, 1999. On Nov. 11, 1999, the investor sold 300 shares.The basis of all the shares sold would be the same, but the holdingperiod of 200 shares would be long-term and the holding period for the100 shares would be short-term.

[0122] For a single category example, suppose an investor bought thefollowing shares in the XYZ Mutual fund: 100 shares in 1996 at $10 pershare; 100 shares in 1997 at $12 per share; and 100 shares in 1998 at$26 per share. On Apr. 8, 1999, the investor sold 150 shares. The basisof the shares sold would be $2,600 ($16 per share), computed as follows.

[0123] Total cost=($1,000+$1,200+$2,600)=$4,800

[0124] Average basis per share=($4,800/300)=$16

[0125] Basis of shares sold=($16×150)=$2,400

[0126] The screen output screen shown in FIG. 13 displays threealternative cost basis methods; cost basis per share based on closingprice, average high and low price and opening price. These alternativesare preferably made available to accommodate the user's option ofselecting the most favorable tax treatment as permissible by theInternal Revenue Service. It will be understood by those skilled in theart that these alternative cost basis methods are implemented usingsimilar calculation processes (described below), however, each methodmay use a different set of price information for making calculations.

[0127] As shown in FIG. 14, the present process is preferably embodiedin an automated process, relying on database capabilities to provide therequisite information necessary for the process to be accomplished. Theautomated process may be hosted on one or more servers. Individualcomponents of the system, such as database, may be provided by differententities, with the individual components communicably connected with theinternet.

[0128] The above process is illustrated assuming information regardingan investment is specifically known. If an investor doesn't know a dateof purchase, averaged values can be developed for the investor based ona purchased period. Sale Dates can also be estimated where investorrecords do not provide the necessary date.

[0129] Although the presently preferred interface between the system anda user is a graphical user interface, the present invention may beimplemented in a batch process, such that a list of investments, andassociated information, is presented to the system, allowing presentbasis determinations to be made on the list. Alternately, the presentinvention and process may be implemented in spread-sheet fashion, withinformation provided to the system being provided in the form of aspreadsheet, such that revision of the data provided to the system viathe spreadsheet causes the resultant basis determinations to be updatedbased upon the revision.

[0130] The previous description of the preferred embodiments is providedto enable any person skilled in the art to make and use the presentinvention. The various modifications to these embodiments will bereadily apparent to those skilled in the art, and the generic principlesdefined herein may be applied to other embodiments without the use ofthe inventive faculty. Thus, the present invention is not intended to belimited to the embodiments shown herein but is to be accorded the widestscope consistent with the principles and novel features disclosedherein.

What is claimed is:
 1. A computer-implemented method for determining acost basis associated with a plurality of shares of a security,comprising the steps of: (A) entering, into a computer system,information identifying an issuer associated with the security, apurchase date of the security, and a number of shares of the securitypurchased on the purchase date; (B) determining a purchase price pershare of the security on the purchase date; (C) retrieving from adatabase, in response to the information identifying the issuer, thepurchase date and the sale date, a list of capital events that occurredin connection with the security between the purchase date and sale date;wherein the list of capital events includes at least one event selectedfrom the group consisting of a distribution reinvestment, a spin-offevent, a merger event and a split event; and wherein the database storespast price per share information and capital events for a plurality ofdifferent of securities associated with different issuers; (D)retrieving from a database one or more shares held adjustment ratios,wherein the shares held adjustment ratios correspond to at least one ofthe capital events that occurred in connection with the security betweenthe purchase date and the sale date; (E) determining a current costbasis associated with the security by applying at least one shares heldadjustment ratio to the initial basis of the security; and (F) ifmultiple shares held adjustment ratios were retrieved from the database,then (i) assigning an intermediate cost basis equal to the current costbasis; (ii) adjusting the current cost basis by applying a furthershares held adjustment ratio to the intermediate cost basis; and (iii)repeating steps (i)-(ii) until each further shares held adjustment ratioretrieved from the database has been used to adjust the cost basis ofthe security; wherein each further shares held adjustment ratioretrieved from the database has an event date associated therewith andis applied in step (F) in a chronological order such that the sharesheld adjustment ratio associated with a latest event date is applied ina final iteration of step (ii).
 2. The method of claim 1 , wherein theprice of the security on a purchase date is provided by a user.
 3. Themethod of claim 1 wherein the price of the security on a purchase dateis obtained from a database.
 4. The method of claim 1 , wherein theplurality of different securities include common stocks, mutual findsand closed end bond funds.
 5. The method of claim 1 , wherein the sharesheld adjustment ratio associated with each dividend reinvestment eventstored in the database corresponds to a dividend amount issued per shareat the time of each such dividend reinvestment event.
 6. The method ofclaim 1 , wherein the shares held adjustment ratio associated with eachstock-split event stored in the database corresponds to a number ofadditional shares of a given security issued for each share of the givensecurity held prior to such stock-split event.
 7. The method of claim 1, wherein the shares held adjustment ratio associated with each mergerevent stored in the database corresponds to a number of shares of asecurity associated with a merged entity issued for each shareassociated with an issuer that merged into the merged entity.
 8. Themethod of claim 1 , wherein the shares held adjustment ratio associatedwith each spin-off event stored in the database corresponds to a numberof shares of a security associated with a spun-off entity issued foreach share associated with an issuer that divested the spun-off entity.9. The method of claim 1 , wherein the shares held adjustment rationassociated with a merger event stored in the database corresponds to anumber of shares of a security associated with a merger entity issuedfor each share associated with an issuer that merged with the mergerentity.
 10. The method of claim 1 , wherein the list of capital eventsfurther includes worthless security events.
 11. The method of claim 10 ,further comprising the step of notifying a user of the worthlesssecurity event, the date of the worthless security event, and the basisof the security at the time of the worthless security event.
 12. Themethod of claim 1 , wherein the step of entering, into a computersystem, information identifying an issuer associated with the security,a purchase date of the security, and a number of shares of the securitypurchased on the purchase date further comprises entering theinformation into the computer system via a graphical user interface. 13.The method of claim 1 , wherein the step of entering, into a computersystem, information identifying an issuer associated with the security,a purchase date of the security, and a number of shares of the securitypurchased on the purchase date further comprises entering theinformation into the computer system via a spreadsheet interface. 14.The method of claim 1 , wherein the step of entering, into a computersystem, information identifying an issuer associated with the security,a purchase date of the security, and a number of shares of the securitypurchased on the purchase date further comprises entering theinformation into the computer system via a batch list.
 15. The method ofclaim 1 , wherein the list of capital events further includes securitydelisting events, and the method further comprises notifying a user ofthe delisting event, the date of the delisting event, and the basis ofthe security of the delisting event.
 16. The method of claim 15 ,wherein the list of capital events further includes security relistingevents, and the method further comprises the step of determining whethera security has been relisted after a delisting event.
 17. The method ofclaim 1 , wherein the database stores the capital events for theplurality of different securities in a first table, and the databasestores price information for each of the plurality of securities in atleast a second table.
 18. The method of claim 17 , wherein the databasefurther stores security issuer information in a third table, saidsecurity issuer information correlating identification changes in asecurity.
 19. The method of claim 17 , wherein for each capital eventstored in the first table, the database includes fields corresponding toa name of a company associated with such capital event, a stock symbolassociated with such capital event, a CUSIP number associated with suchcapital event, a date of such capital event, a type of such capitalevent, and a shares held adjustment ratio associated with such capitalevent.
 20. The method of claim 19 , wherein for each capital eventstored in the first table, the database further includes a field thatstores a value correlating the stock symbol and the CUSIP numberassociated with such capital event.
 21. The method of claim 20 , whereinthe value correlating the stock symbol and the CUSIP number uniquelyidentifies an issuer associated with a given security in the database assuch issuer undergoes merger events, spin-off events and name changeevents.
 22. The method of claim 17 , wherein for each date for whichprice information is stored in the second table, the database stores ahigh price, a low price, an open price and a close price for each of theplurality of securities.
 23. The method of claim 1 , further comprisingstep of determining whether a security for which a present basis is tobe determined is an option security, and where the security for which apresent basis is sought is an option security, determining whether theoption security was exercised.
 24. The method of claim 23 , furthercomprising the steps of retrieving a shares held adjustment ratio and anexercise price for an option security from a database when it isdetermined that the option security was exercised, and determining fromoption security basis and the exercise price a basis in a securityobtained by exercise of the option security.
 25. The method of claim 23, further comprising the step of retrieving an expiration date from adatabase when it is determined that an option security has not beenexercised, and where the expiration date is prior to the present date,informing a user of the expiration of the option security, the date ofsuch expiration, and the basis of the option securities held on the dateof expiration.
 26. The method of claim 1 , wherein the list of capitalevents further includes at least one rights issuance.
 27. The method ofclaim 26 , wherein the method further comprises the steps of: whenrights issuance is retrieved as a capital event for a security,notifying the user of the rights issuance; determining whether therights have been exercised; and when the rights have been exercised,determining a basis allocation between the original security and asecurity acquired by exercise of the rights;
 28. The method of claim 1 ,wherein the list of capital events further includes at least onewarrants issuance.
 29. The method of claim 28 , wherein the methodfurther comprises the steps of: when a warrants issuance is retrieved asa capital event, notifying the user of the warrants issuance;determining whether the warrant has been exercised; and when the warranthas been exercised; determining a basis allocation between the originalsecurity and the interest acquired by exercise of the warrant.
 30. Acomputer-readable medium tangibly embodying instructions which, whenexecuted by a computer, implement a process comprising the steps of:receiving from a user an identifier associated with an investment forwhich the basis is desired to be tracked; receiving from the user apurchase price for the investment when the user knows the purchase priceof the investment; determining the original basis of the investment;accessing a database to identify capital events of, wherein said capitalevents of interest occurred after the investment was purchased, saidcapital events further including at least one capital event from thegroup consisting of a dividend reinvestment event, a spin off event, amerger event, a split event, and an option expiration event; determiningfrom a database the effect of identified capital events of interest onthe basis of the investment; applying the effect of identified capitalevents of interest to the original basis to determine a corrected basis;informing the user of the corrected basis.
 31. A computer-readablemedium tangibly embodying instructions according to claim 30 , whereinthe instructions when executed by a computer further comprising thesteps of: when a use does not know the purchase price of the investment,querying the user for the purchase date of the investment; when the userprovides a purchase date for the investment, querying a database todetermine the purchase price of the investment on the provided purchasedate.
 32. A computer readable medium tangibly embodying instructionsaccording to claim 31 , wherein the instructions when executed by acomputer further comprise the steps of: when a purchase date is unknown,determining a period within which the investment was purchased;determining from a database the purchase prices for the investmentduring the period; determining an average purchase price for theinvestment for the identified period.
 33. A computer-readable mediumtangibly embodying instructions according to claim 30 , wherein theinstructions when executed by a computer further comprise the steps of:determining whether the investment has been sold; when the investmenthas been sold, querying the user for sale price of the investment; whenthe user provides a sale price for the investment, determining theamount received for selling the investment; determining the capital gainor loss for the investment; wherein the process further limits capitalevents of interest to those capital events having occurred afterpurchase of the investment and prior to sale of the investment.
 34. Acomputer-readable medium tangibly embodying instructions according toclaim 33 , wherein the instructions when executed by a computer furthercomprising the steps of: when a user does not know the sale price of theinvestment, querying the user for the sale date of the investment; whenthe user provides a sale date for the investment, querying a database todetermine the sale price of the investment on the provided sale date.35. A computer readable medium tangibly embodying instructions accordingto claim 34 , wherein the instructions when executed by a computerfurther comprise the steps of: when a sale date is unknown, determininga period within which the investment was sold; determining from adatabase the sale prices for the investment during the period;determining an average purchase price for the investment for theidentified period.
 36. A computer readable medium tangibly embodyinginstructions according to claim 30 , wherein the instructions whenexecuted by a computer further comprise the steps of: determiningwhether the investment is an option investment: when the investment isan option investment, querying the user to determine whether the optioninvestment was an option to purchase an associated investment; when theinvestment is an option to purchase an associated investment, queryingthe user to determine whether the option to purchase an associatedinvestment was exercised; when the option to purchase an associatedinvestment was exercised, querying the user to determine the exerciseprice of the associated investment; determining the basis of theassociated investment based on the exercise price of the investment andthe purchase price of the option to purchase.
 37. A computer readablemedium tangibly embodying instructions according to claim 30 , whereinthe investment is a publicly traded security, the quantity of thesecurity being definable in units, and wherein the basis of theinvestment is expressed in per units terms.
 38. A computer readablemedium tangibly embodying instructions according to claim 30 , whereinthe instructions when executed by a computer further comprise the stepsof: querying a user to determine a purchased number of units of asecurity comprising the investment desired to be tracked; retrievingfrom a database a shares held adjustment ratio associated with a capitalevent of interest for the publicly traded security; adjusting the basisper share of the security by determining an adjusted number of units ofthe security held, said adjusted number being determined by multiplyingpurchased number of units by the shares held adjustment ratio, andadjusting the basis per share of the investment as required by theadjusted number of units.
 39. A system for determining a cost basisassociated with a plurality of shares of a security, comprising: (A) acomputer system with a user interface that receives informationidentifying an issuer associated with the security, a purchase date ofthe security, a number of shares of the security purchased on thepurchase date, and a sale date of the security; (B) a database coupledto the computer system, wherein the database stores a purchase price pershare of the security on the purchase date; (C) software that causes thecomputer system to retrieve from the database, in response to theinformation identifying the issuer, the purchase date and the sale date,a list of capital events that occurred in connection with the securitybetween the purchase date and sale date; wherein the list of capitalevents includes at least one event selected from the group consisting ofa reinvested dividend event, a stock spin-off event, a stock mergerevent and a stock split event; and wherein the database stores pastprice per share information and capital events for a plurality ofdifferent of securities associated with different issuers; (D) whereinthe software further causes the computer system to retrieve from thedatabase one or more cost basis adjustment ratios, wherein each of thecost basis adjustment ratios corresponds to one of the capital eventsthat occurred in connection with the security between the purchase dateand the sale date; (E) wherein the software further causes the computersystem to determine a current cost basis associated with the security byapplying a first cost adjustment ratio to the purchase price per shareof the security; and (F) wherein, if multiple cost basis adjustmentratios were retrieved from the database by the software, then thesoftware: (i) assigns an intermediate cost basis equal to the currentcost basis; (ii) adjusts the current cost basis by applying a furthercost adjustment ratio to the intermediate cost basis; and (iii) repeatssteps (i)-(ii) until each further cost adjustment ratio retrieved fromthe database has been used to adjust the current cost basis; whereineach further cost adjustment ratio retrieved from the database has anevent date associated therewith and is applied in a chronological ordersuch that the cost adjustment ratio associated with a latest event dateis applied in a final iteration of step (ii).
 40. A system fordetermining a cost basis associated with a plurality of shares of asecurity, comprising: (A) means for entering, into a computer system,information identifying an issuer associated with the security, apurchase date of the security, a number of shares of the securitypurchased on the purchase date, and a sale date of the security; (B)means for retrieving, from a database coupled to the computer system orfrom a user of the computer system, a purchase price per share of thesecurity on the purchase date; (C) means for retrieving from thedatabase, in response to the information identifying the issuer, thepurchase date and the sale date, a list of capital events that occurredin connection with the security between the purchase date and sale date;wherein the list of capital events includes at least one event selectedfrom the group consisting of a reinvested dividend event, a stockspin-off event, a stock merger event and a stock split event; andwherein the database stores past price per share information and capitalevents for a plurality of different of securities associated withdifferent issuers; (D) means for retrieving from the database one ormore cost basis adjustment ratios, wherein each of the cost basisadjustment ratios corresponds to one of the capital events that occurredin connection with the security between the purchase date and the saledate; (E) means for determining a current cost basis associated with thesecurity in accordance with the one or more cost adjustment ratios andthe purchase price per share of the security.